Posted tagged ‘retirement’

Book on Retirement : Retire Rich Invest Rs. 40 a day

January 23, 2010

Book written by me….

RETIRE RICH INVEST, 9789380200071

book review that I found online…

About the Book : – To most people retirement is an age. It of course depends on your health, the company you work for etc. However in the first chapter I would like to introduce you to the concept that retirement is an amount of money! After all, if you have that magical amount why not retire early?

The second chapter takes you through the steps and importance of planning, and to the dangers of not planning.

Retirement is a goal and has to be approached in a financial planning mode. Retirement Goal Setting becomes important. How much money is adequate for a person to retire? Here is a generic answer telling you what are the factors to consider while trying to answer this question. This chapter has many pointers and a calculator which leads you towards the answer.

Can you really retire by investing an amount as little as Rs. 40 a day? The answer is yes it is the power of compounding. If you do have or time on your side, it is possible to create a retirement corpus on an amount as small as Rs. 40 a day. And the fantastic thing is that this small amount can be got by making simple changes in your life style.

If you have accumulated money for your retirement, you should also know how to withdraw. Here we deal with what is annuity, what are the methods of creating annuities, what options are available, and the works about annuity.

A few chapters are devoted to answering how much and what type of insurance should you look at during retirement, the attitude of the Indian family to retirement, the need to make a will, some retirement blunders, etc.

What is interesting are the tables at the end of the book telling you how much to save and invest – and case studies about portfolio make over for retirement.

Available at the following shops:

Twistntales (Pune) Shop1, Siddarth, Gaikwad nagar, Aundh, Ph:-020-25881465 / 25899745

Paperback (Thane) Dayanand – cell no. 9967255843  022-21714414

Bookzone, Fort, Mumbai. (022-25054616/17)    All Crossword Stores in Mumbai and New Delhi.

New Delhi: Jain Book Agency (011-4151380), Land-Mark (0124-4143020), Om Bookshop (011-46075621), Pages (011-46132001).

Chennai: Landmark – has the copies. Odyssey not sure..Crossword has it..

Also available online from cnbc..check out on google..


Retirement Planning simple steps

August 26, 2008

In every financial planning class I need to do a post lunch session. To keep them awake I ask them to do a simple exercise – calculating how much money they require for retirement.

Unless they are at least 32-33 years of age, they have no clue as to how much they need for retirement. Once they see the figure (let us say Rs. 4 crores) they get into a DENIAL mode. Immediate reaction is to say “my father did not need this much amount” or “my expenses will reduce after retirement” or “my children will take care of me”.

Once they cool down, they sit and work out how it can be put together.

What most people do not realise is that the figure looks very big because we are seeing it from a very long tunnel. If I were to tell you that YES you do require Rs. 4 crores to retire, 30 years from now. HOWEVER if you were to invest just Rs. 100 a day for 30 years in a SIP which gave a SENSEX rate of return, you will have Rs. 4 crores in your retirement kitty.

So the important lessons in retirement planning are simple – make an estimate of your needs, adjust them for time value, compute the amount that you need to invest on a monthly basis, THEN START TODAY. Do not let the power of compounding go away – harness it when you can. Simple.

Please respect your spouse!

June 7, 2008

I just met a 63 year old woman who had lost her parent. She had no clue about either the municipal formalities, banking formalities, or anything else of her late father.

She was not a dumb woman. She had a PhD in philosophy, but had given up all that long, long ago for taking care of her demanding husband and 3 kids. Now this great husband in order to “protect” her had always provided her with a car, driver, etc. and she was completely dependant on “somebody” to go out.

she did not access a bank account, did not use the net banking, did not use the atm, the cell phone was only for receiving calls…she was reduced to a vegetable.

All her 3 daughters were married and in 3 different parts of the world. To them their grandfathers death meant Mom was now available as a nanny supervisor. You know the revise dialogue “Mom you need not do anything, Just supervise my nanny who looks after my kids”. funny.

this is not about being judgemental. If you want your spouse (sorry, I actually mean wife) to live a happy life after your death, TEACH her about money, make a will and ensure that there is enuf money. However if she is a philosophy graduate also tell her not to sign cheques for the bank manager who is selling her a lemon.

Investors, Risks and retirement.

March 6, 2008

Investors face all kinds of risks in the financial markets.There is credit risk – the risk that a borrower will default on an obligation. Liquidity risk – the possibility that you will not be able to convert a security into cash when you need the money. Market risk – the likelihood that the share market will decline in value.But the biggest risk of all is shortfall risk. This is the risk that you’ll outlive your savings. And it is quite real.Thanks to better lifestyles, improved nutrition and advances in health care, people today are living longer than ever. People retiring at 58, 60 or even 65 face the serious prospect of spending up to three full decades in retirement.That means investors using an ultra-conservative approach, investing in RBI Bonds, Bank FDs, Money market mutual funds, are often taking a bigger gamble with their portfolios – and their retirement lifestyle – than they realize. This is especially true when you consider the thief that robs us all, inflation.

All Signs Point to Higher Inflation

The “headline” consumer price index (CPI) for the year ending in January was up 4.3%, the third consecutive monthly reading above 4%.Of course, the “core” CPI, the one that excludes volatile energy and food prices, shows a 12-month rise of 2.5%. That’s not yet dramatic enough to grab the headlines. But there is likely more bad news on this front dead ahead.

Why? Let’s start with the strong rupee. The gushing in of foreign exchange reduces the cost of imports, and making consumption easy. That’s inflationary.Then there is the great P Chidambaram. He does an Enron with the Indian balance sheet (without even a drunk Arthur Anderson for oversight!).The core inflation rate is above its so-called comfort zone. Yet, transfixed by the credit crisis and the housing slump, the Fed has brought rate down 200 basis points. And stands ready to cut rates further. P C while ignoring fuel prices (he unfortunately controls all aspects of this industry), “requests” cement, steel, pharma, industries to control prices. This, too, is inflationary. And then there are banks who are regularly “requested” to reduce interest rates. God bless the shareholders of banks, and oil companies. The gold market is signaling higher inflation, too.

The “barbarous relic” has been hitting one new all-time high after another lately. And it’s not just a short-term phenomenon. Gold is up more than 225% over the last eight years.Some consumers shrug and say, “What difference does it really make if inflation bumps up another point or two?” Don’t make that mistake.

With a 4% inflation rate, an income of Rs.100,000 is worth only Rs.70,000 after nine years. After 17 years its real worth is cut in half. After 30 years, it only has the purchasing power of Rs.30,000.Investors planning for retirement might be unpleasantly surprised to see the Rs.100,000 investment income they counted on generating only Rs.30,000 worth of purchasing power. And that’s before taxes. And we are talking of inflation of 6%, 8%…as it effects you.

Don’t Bail On Shares  – So what do you do? First off, don’t let the bears scare you out of the market. Shares can be nerve-wracking in the short term. And they can always go lower before they go higher. But shares are an incredible wealth-building machine over the long term. For time periods measured over a decade or more, nothing has beaten the returns generated by a diversified portfolio of high-quality shares.

As I’ve been telling FAIDAA (see members, internationally junk bonds sport attractive yields now, too. A raw materials fund that tracks the performance of the Commodity Index is not a bad idea, either. And gold-mining shares are another fine hedge against inflation. (Oops, there is only Deccan Gold, listed on the BSE if you are reading this post in India)But don’t bail on your shares portfolio. If you jump out of the market, where will you put all that money to work? In Bank deposits yielding less than 7%? In money markets whose yields drop with every rate cut by the Fed / RBI? Into real estate, which is in a downward spiral? (ok not yet in India, but deals have frozen – just not happening!)

I’m not saying these investments don’t have a place in your portfolio. But you have to maintain a balance – and a decent weighting in equities.In short, if you want your retirement years to be truly “golden,” common shares are still your best protection against shortfall risk, the biggest risk you face as an investor.

Happy retirement, happy investing! 

Financial planning for the young

February 25, 2008

You have just crossed your 23rd birthday, when you’ve gained the education and/or skills you need for the career you’ve chosen, and you’re earning money and learning how to handle it. Ok, ok you are not in your twenties but are in your thirties and have started looking at financial planning. Fine, this article will be just as applicable to you – only that the time advantage of a 20 year old is not available to you.


 Remember the importance of an early start in a One-day International cricket match? Remember the heroes? An early start ensures that the middle order batsmen can play with lesser stress and strain. Similarly there’s no time like your twenties to start putting your money to work for you so that you can achieve your financial goals throughout your life. Developing good spending, saving and investing habits, and learning to budget and invest during your twenties, can help.

You prevent needless debt, put away money for the things that are important to you, and take advantage of the power of compounding. In fact, compounding of earnings is so powerful that those who start saving for retirement in their twenties can amass large nest eggs with relatively little effort, as long as they invest regularly. Also remember retirement is not an age, it is a state of mind and a particular level of asset accumulation. If retiring means doing what you can rather than what you must, maybe you may want to retire at 37 instead of 55.

For an example of the power of compounding, take a 23-year-old who invests a paltry Rs.10,000 a month – he will accumulate about Rs. 15 crores for his retirement. Contrast this with a difficult Rs. 51,000 for a 35 year old. Not bad for an early start right?

GOALS! The first step in planning is to identify your goals. In most financial planning exercises, this is the most difficult task to achieve for most of the people that I meet. Your short-term goals (five years or less) might include a wedding, buying furniture, a new car or a career changing higher education, doing your own business, or more lofty ones like dedicating your life to social services.

Next, think about medium-term goals, such as owning your own home and financing your kids’ college educations.

Finally, list your long-term goals, such as retirement and travel.

Remember all these goals have a financial implication. All of these goals will mean some sacrifice of present consumption for a benefit in the future. You need to feel very strongly about these goals. To use a typical MBA term, you need a personal buy-in.

This article can at best motivate you into some action- but you need to be motivated enough to pick up the phone and make that call or send an email! Estimate how much money you’ll need to meet each of your goals, and determine how much you need to invest each month to reach that goal within your timeframe. Planning is a word document, budgeting is putting the plan in excel. When budgeting, set aside money to go towards your short-term, medium-term, and long-term goals. Try not to sacrifice one for the other. And try to prioritize them. Understand that since we all have limited means of income and too many goals to achieve, there will be conflicts. You need to resolve them. Too many of my clients ask me to prioritize their goals. Sorry this is your job as a client.

Is your daughter’s wedding more important than your retirement goal? I do not think so. However if you do think so, so be it.

 Just do it! It may be wise to invest in Savings Bank accounts, Mutual funds, etc. for your short-term goals, and unit linked policies for your medium and long-term goals. Historically, the stock market has outperformed any other type of investment over time, but it’s not for the faint of heart. Its volatility makes it a less than ideal investment for short-term funds, unless you have a very high tolerance to volatility. Remember equity or debt is never the question – it is only how much of each. You can enter the equity market or the debt market through vehicles like Mutual funds or unit linked policies. As an ad for a shoe company says, “Just do it”.

It is better to implement a plan while waiting for the “best plan for the year” . With the wealth of information available on the internet, it’s never been easier to learn how to be a smart investor. You just need to know how to separate the information from the noise.

Financial security comes from net worth. Net worth from smart investing

February 6, 2008

For many generations we have believed what we own (i.e. items on which we are allowed to put our names) are our assets, and monies that we owe are our liabilities. It took Robert Kiyosaki to tell us that assets that put money in our bank are our real assets – equity shares, rental property, mutual funds, unit-linked plans etc. I like to make the distinction a little differently – the “show off” assets – house, car, beach shack, and the boring assets – like mutual funds or unit linked policies – the former is loved, most people do the latter grudgingly. What you need to remember is that many artistes died broke and top of the mind recall are – Marilyn Monroe, and Marlon Brando. You keep hearing stories about how Michael Jackson has no money to pay his lawyers. The descendants of the last king of India – Bahadur Shah Zafar and the descendants of the last king of Bengal are not exactly middle class. Far from it. If you see the list of Indian film stars, who either died a pauper or have made a mess of their wealth by not leaving a clear will is quite shocking. The list could go on, naming big sports figures, entertainers, entrepreneurs and many folks who accumulated it a few rupees at a time by hard work and thrift. All of them had too many of the “show off” assets, but perhaps none of the “boring” assets. Too many people have learned that making a fortune is the easy part. The difficult part is in managing it. What all this means is how much money you have is a function of how well you managed your money, nor really how much you earned. If money management skills are, equal how is it that the Forbes list of the richest people keeps changing every year? If your money is not useful and available to you when you need it for yourself or your loved ones, money is useless. Your confidence to back answer your boss should come from your “net worth statement”, not your “next work” that you are able to get.Let us see what we can do to ensure that the money that we earn creates security for us.

· Too many people I meet are Income rich and balance sheet poor: If you earn Rs.1, 500,000 a year, but spend Rs.1.503, 000, you are broke, worse off than the person who earns Rs.500, 000 but spends only Rs.450, 000. You may be income-statement rich, but you are asset poor. Not enough people are able to realize that the amount of money in the retirement or pension kitty and the amount of life insurance is a function of your CURRENT life style, not the lifestyle you had 5 years back. Financial security comes from being able to live off your assets – and not need the job by the time you are 45.

· Start learning about money – it is not a difficult task. Start taking interest in how credit cards work, how to live within a budget, mutual funds, unit linked plans, financial goal setting, making a will, etc. Managing money is not in any academic syllabus at any academic institution, but you still need to know it. So go ahead, and learn. More importantly, for the women who are reading this article please ensure that you learn about money and encourage your friends, colleagues, daughters, daughters in law, etc. to learn about money. Money is not a “man” thing as much as “cooking” is not a “woman” thing.

· Don’t confuse debt with wealth. If you buy a Rs.8 million house with a Rs.7.75 million mortgage, you are not worth Rs.8 million. You are Rs.7.75 million in debt. Last week when my broker bought a car, he did not borrow any portion of the Rs. 14 lakhs that he needed to buy it. His logic was simple; many of the investments that he had made would yield him less than 15% p.a return – including his PPF. His logic was why should you borrow at a rate higher than the rate at which you lend? Most rich people do not borrow because they do not have money. They borrow because their assets are capable of earning much more than the rate at which they borrow. And as Robert Kiyosaki says in his book the rich buy the boring (my terminology) assets first and then use the income from these assets to buy the “luxuries” that we cannot live without.

· Get good advice: And then listen to them. A great portfolio manager manages my equity portfolio – and he keeps giving good results in all kinds of markets. My role in the good performance of my portfolio is simple – I let him be. Financial advisors like doctors are busy and they like involved and non-interfering clients. You may need a financial planner, a portfolio manager, and a banker. Or a simple mutual fund distributor. Once you have found a good advisor, trust her to perform.

· Retire gracefully: Plan for your retirement. Retirement is an amount of money, not an age. If you are a business owner, for instance, don’t assume you will be able to sell it for the “right” price when you are ready to retire. Keep shifting some money from “business” to the “personal” bucket of finances. Rather than put all your eggs in one basket, set aside a percentage of all earnings in conservative assets to help guarantee a secure retirement, no matter what happens to your other assets.

· Protect with life insurance. is the item that people pay attention to only when approached by an agent. Life insurance is a tremendous tool to help achieve distribution goals, all generally income-tax-free. It puts tremendous amount of liquidity and gives peace of mind. I know men who have constantly told their wives “use the life insurance money to pay off the mortgage if I were not around”. I would rather have guys telling their wives “I have a life insurance policy and Saki is our financial planner. I trust her, and so can you. Ask her how to collect the insurance money and consultatively chose an investment option. Use the notes we made at the financial planning seminar we attended”. Ha, that will be the day. If you do all this, will your wealth give you security? Well there are no “assured return” schemes any more. You need to keep learning and trying. However, by addressing the above issues, you can dramatically increase the potential for turning the wealth you’ve achieved into long-term financial security for yourself and for your loved ones.

First Job? Start Investing! Financial Planning at the start of your career…

February 4, 2008

Old age, death, retirement, are all very far away in life. Life is fun. You have just started earning, why should you start financial planning? And for heavens sake at the age of 23!? Well read on. Most 23 year olds are different.

Most of them have financial needs that differ materially from those of the rest of the population.

I know of one mother who has decided to make her son repay all the ‘extravagant expenses’ that he had during his college life. Making kids pay is quite un-Indian and not a regular feature in most of the relationships that I know of.

To that end, I have spoken to these kids in a generic manner and I thought I would list what makes these kids tick and must recognise the fact that the advice and services targeted toward this younger crowd might not be rewarded with an immediate meaningful commission. However it is nice to catch them young and plan a life long relationship. ?

Many demands on their liquidity

Most of us recommend that these investors sock away cash in a formal retirement plan in the early years in the hope that the accumulated savings will grow into a big round sum when the investor reaches retirement age. This is sound advice.

But given the aggression of advisors and bank relationship managers, this advice is taken to some ridiculous heights. However, these advisors must also be aware that not all investors can save money in their early years.

In addition, younger investors often need to maintain a certain level of cash so that they can purchase items such as a car, or pay a down payment on their dream homes.

Also at such a young age committing too much money into a ‘locked-in’ scheme may not make much sense, because these kids will need money to buy a car, a down payment for a house, marriage, etc.

Hence it is necessary to keep some money liquid (free) and not earmarked to any investment.This means that sometimes the best advice that an investment professional can give is for the investor to keep her/his funds in a money market mutual fund, or some other short term investment vehicle that won’t lose value.

By definition, this may also mean that the advisor or broker might not draw a sensible commission. However it is necessary to see what the investor wishes to do with some of her/his money. Hence for this class PPF, Unit linked Pension plans etc may not be suitable — at least not for a big portion of their investments.

Risk tolerance

As investment advisors are taught that the younger an investor is, the more aggressive they should be with their investments. However, this is too generic.

A young investor who is supporting a dependant family in the absence of a parent is very different from a young investor whose parents are both holding highly paid jobs or a young investor whose parents have a lot of ancestral wealth.

Also, some investors aren’t aggressive investors by nature. They simply don’t have a high risk tolerance, even if they have a higher net worth, and can afford to lose more than their peers. Advisors should realise that ‘ability’ to take risk could be different from ‘wanting’ to take risks.

Therefore, advisors need to realise that their first objective is to make sure the investor’s needs and desires are being met. This may mean forgoing the strategies that your boss may be pushing on you. It may also mean investing in asset classes drawing a smaller commission.

Supporting the family

As a result of an aging population, many young people are being forced to provide (food, clothing, shelter, health care) for their parents or grandparents. This may mean some money of theirs should also be in liquid funds to meet emergencies.

Alternatively, they may need or prefer to allocate a large portion of their investments to debt funds in order to obtain a steady stream of income and to satisfy ongoing living arrangements for their elders.Putting in so much of effort and realising that the young client is not capable of investing money in equity funds (which is what all advisors seem to be selling in a rising market) and thus the opportunity to make money is not really on and can be frustrating.

Insurance needs

Younger investors typically overlook their need for life, disability and medical insurance. They also overlook the fact that the best time to buy insurance is when they are young,?when the premiums are relatively inexpensive.

One reason of young investors not looking at insurance very kindly is perhaps the over aggressive sales pitch by a typical insurance salesperson. This may be putting off potential investors. However, if the young investor is one on whom his parents have spent money for education and this amount is a significant portion of their parents’ investment, they need to look at insurance.

If the young investor has taken a loan, supports a family, is planning to get married, s/he surely needs life insurance.

The discipline factor

Not all young investors are able to put away money each month for retirement. However, it is vital for us to instill some sense of urgency in their investors and train them to save at least some portion of their monthly pay, and then to put that savings into a retirement account such as a Pension Plan or PPF.

Far too often, advisors are focused on their larger investors, and fail to look for the Rs 3,000 -cheque their younger investors send in on a monthly basis to be added to their accounts. Employers / advisors/ brokers need to make certain that their investors follow through and consistently add to their investments.

  • This can be easily achieved by recommending that they set up a SIP system, in which the funds are automatically added to their accounts each month.

Bottom Line

The assumption that all younger investors should be aggressive with their investments, or should automatically fund their retirement plans to the maximum isn’t always correct. Younger investors have many needs and goals that must be properly exposed to all the options. And once you have made the investment keep track of your net-worth by visiting and getting the software to track your net-worth as well as file your tax return.